So, just how bad is the crisis plaguing the nation's financial system?

"It's as bad as it can be," says Bob Walters, chief economist at Quicken Loans.

In this gloomy atmosphere, investors are selling stocks in hopes of getting out before things get worse. Others are dumping assets because they must raise capital and have no choice.

"In a world where's there's no buyers and only sellers, price plummets," Walters says.

To stem the tide, the government has stepped in to become a major buyer. The Treasury Department plans to buy and sell mortgages and mortgage-backed securities through the Troubled Asset Relief Program, also known as TARP. The Treasury also will spend $250 billion to buy equity in an array of financial institutions.

Meanwhile, the world's central banks tried to inject liquidity into the world's financial system via an Oct. 8 coordinated rate cut.

America's central bank -- the Federal Reserve -- decided this week to add even more stimulus by cutting its target for the federal funds rate by another 50 basis points.

Banks use the federal funds rate when deciding what to charge when making overnight loans to other banks.

"Everybody else is running for the hills," Walters says. "So the central banks of the world are trying to apply tourniquets."

Irrational rationale
The government's actions have become necessary because financial institutions throughout the world are frozen with fear, Walters says.

"We've gone from rational decisions -- where some people don't want to trade with weak counterparties or some people want to try to get rid of weak loans -- to irrational decisions, where people don't want to trade with good counterparties in intelligent loans," he says. "It's simply because they want to hoard capital."

Still, Walters isn't ready to throw in the towel on the U.S. economy. "We have a central bank that is absolutely flooding the economy with money in all different forms -- through lowering rates, through buying these assets," he says.

Eventually, all the liquidity "will have an effect -- make no bones about it," Walters says. "To get your brain around how much money the printing presses are pumping -- it's almost unfathomable," he says.

In the short term, however, an economic slowdown is likely, with increased job losses and small-business failures, Walters says. "There's no question that we are in for a couple years of rough economic times," he says.

Richard DeKaser, chief economist for National City Corp., agrees that the economy will continue to slow. "Basically, the economy appears to be in a pretty dramatic tumble," he says.

Dekaser expects the gross domestic product to fall to 0.4 percent for the third quarter of 2008, and to turn negative (-1.2 percent) in the fourth quarter.

However, DeKaser is hopeful that a turnaround may arrive earlier than some predict. While he expects 2009 first-quarter GDP to clock in at 1 percent (which he characterizes as "dismal by any standard"), he anticipates a stronger recovery after that.

"I'm assuming in my forecast that the very, very aggressive policy actions (will) begin to have traction and economic impacts starting in the spring of '09," he says.

Risk and reward
While waiting for the economy to recover, home shoppers willing to go out on a limb may score a great deal on a home, Walters says. "There's no guarantees, but history tells us that's the case -- that when you buy from people who are panicking, you get a good deal," he says.

Low mortgage rates and sinking home prices make it an excellent time to buy property, Walters says. "Five years from now, I have a strong feeling that we'll look back and go, 'God, what a steal we got on this home,'" Walters says.

Even if you're brave enough to consider taking the plunge, challenges remain. People who already own a home may have difficulty selling their current property. In addition, the worsening credit crunch has made it more difficult to get a loan.

"It's more difficult to qualify than it used to be, but it's not impossible if you have good credit and a job and (you) make some money," Walters says.

Take-away
In recent weeks, a financial meltdown has rocked the confidence of many Americans. Some economists are predicting the U.S. economy will experience its deepest recession in at least a half-century.

Walters believes the present financial crisis will eventually pass, and that brighter days are over the horizon. "I strongly believe that this is not going to end up in financial Armageddon," he says.

Relatively low mortgage rates and plunging home values have created scores of housing bargains in many areas of the country.

While many potential homeowners remain on the sidelines, shoppers with an appetite for risk may be able to score the housing deal of a lifetime.

"Everyone has to look at their own situation," Walters says. "But if you feel decent about your job, if you've got some savings, this is just one heck of a time to secure a property."

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